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Section 56 of GST: Interest for Delay in Refunds of GST

Section 56 of GST stands for Interest on delayed refunds. Section 56 provides for payment of interest on delayed refunds beyond the period of sixty days from the date of receipt of application to avoid delays in sanction or grant of refund.

Statutory Provision

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Section 56: Interest on delayed refunds.

If any tax ordered to be refunded under sub-section (5) of section 54 to any applicant is not refunded within sixty days from the date of receipt of an application under sub-section (1) of that section, interest at such rate not exceeding six percent. as may be specified in the notification issued by the Government on the recommendations of the Council shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of an application under the said sub-section till the date of refund of such tax:

Provided that where any claim of refund arises from an order passed by an adjudicating authority or Appellate Authority or Appellate Tribunal or court which has attained finality and the same is not refunded within sixty days from the date of receipt of an application filed consequent to such order, interest at such rate not exceeding nine percent. as may be notified by the Government on the recommendations of the Council shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of application till the date of refund.

Explanation— For the purposes of this section, where an order of refund is made by an Appellate Authority, Appellate Tribunal or any court against an order of the proper officer under sub-section (5) of section 54, the order passed by the Appellate Authority, Appellate Tribunal or by the court shall be deemed to be an order passed under the said sub-section (5).

Extract from the CGST Rules, 2017

Rule 94: Order sanctioning interest on delayed refunds

Where any interest is due and payable to the applicant under section 56, the proper officer shall make an order along with a [payment order]49 in FORM GST RFD-05, specifying therein the amount of refund which is delayed, the period of delay for which interest is payable and the amount of interest payable, and such amount of interest shall be electronically credited to any of the bank accounts of the applicant mentioned in his registration particulars and as specified in the application for refund.[/box]

Analysis of Section 56

  • Section 56 provides that interest is payable if –
    • Tax paid becomes refundable under section 54(5) to the applicant; and
    • It is not refunded within 60 days from the date of receipt of an application for refund of tax under Section 54(1)
  • Interest is liable to be paid from the date immediately after the expiry of sixty days from the date of receipt of an application till the date of sanction or grant of refund.
  • For the above delay, the Government has specified 6% as the rate of interest vide Notification No.13 /2017 – Central Tax dated 28.06.2017.

It may be noted that any tax shall be considered to have been refunded only when the amount has been credited to the bank account of the applicant.

Therefore, interest will be calculated starting from the date immediately after the expiry of 60 days from the date of receipt of the application till the date on which the amount is credited to the bank account of the applicant.

Where any interest is due and payable to the applicant under Section 56 of the CGST Act the proper officer shall make an order along with a payment order in Form GST RFD-05, specifying therein the amount of refund which is delayed, the period of delay for which interest is payable and the amount of interest payable, and such amount of interest shall be electronically credited to any of the bank accounts of the applicant mentioned in his registration particulars and as specified in the application for refund.

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Illustration: A Ltd has filed a refund claim of excess tax paid with all the documents and records on 19.08.2019. The department sanctioned the refund on 30.11.2019 and credited it to the bank on 1.12.2019. In such a case, interest has to be paid for the period from 18.10.2019 to 1.12.2019.

Explanation to section 56 provides that in cases where the orders of Appellate Authority / Tribunal / Court sanctions refund in an appeal, against the order of refund sanctioning authority, the order of Appellate Authority / Tribunal / Court will be considered as orders passed by the refund sanctioning authority.

In other words, by virtue of such order, the refund has become due and the interest will then be computed from the date of completion of 60 days from the date of the original refund claim made. For all such claims, the Government has specified 9% as the rate of interest vide Notification No.13 /2017 – Central Tax dated 28.06.2017.

Illustration: A Ltd has filed a refund claim of excess tax paid with all the documents and records on 19.08.2019. It was rejected by the refund-sanctioning authority.

On appeal, the Appellate Authority passed the order for a refund based on which the department sanctioned the refund on 30.05.2020. In such a case, interest has to be paid for the period from 18.10.2019 to 30.05.2020.

Further, Rule 94 provides that where any interest is due and payable to the applicant under section 56, the proper officer shall make an order along with payment advice in FORM GST RFD-05, specifying the following:

(a) Amount of refund which is delayed,

(b) the period of delay for which interest is payable and

(c) the amount of interest payable,

and such amount of interest shall be electronically credited to any of the bank accounts of the applicant.

TaxClue Teamhttp://taxclue.in
Taxclue is an online news portal for reporting all news, articles, judgments, Circulars, orders, and notifications relating to various corporate and tax laws in India. We use the tagline ‘Simplifying Laws’. Our mission is to Simplify the Laws and make people aware of their rights and duties in relation to tax matters in order to equip them to participate in nation-building.

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